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Advanced Financial Accounting Report - Domino Pizza

Question :

Learning Outcomes

  1. Explain various theoretical models of accounting
  2. Apply knowledge and understanding to specific financial reporting issues to AASB accounting standards
  3. Discuss the theoretical constructs of contemporary financial accounting
  4. Evaluate and explain the need for the development of a conceptual framework for accounting and demonstrate the influence of such a framework on accounting practice.
  5. Develop an understanding of Australian accounting regulatory framework and the conceptual framework.
  6. How to account for assets, non-current assets and liabilities
  7. Calculate for revaluations and impairments of non-current assets
  8. Analyse the account for leases for both lessees and lessors.

Instructions  

 Go to the website of Domino Pizza and select Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name.

In this section, go to your firm’s annual reports and save to your computer your firm’s latest annual report. For example, these may be dated 30 June 2018 or 31 March 2019. Do not use your firm’s interim financial statements or their concise financial statements. You are need to do the following tasks:

Please read the relevant footnotes of your firm’s financial statements carefully and include information from these footnotes in your answer. Within your firm’s latest annual report, Required:

1- From the annual report of Dominos Pizza and in addition, to providing examples, explain, demonstrate and present factors of a reporting entity and identify if your allocated company is a reporting entity or not?

2- As fundamental qualitative characteristics state your understanding of relevance and representational faithfulness in relation to the useful information of the financial statements and if one is more important than the other in accounting for, assets and liabilities. Provide suitable examples from your allocated company.

Report Structure

  • Introduction
  • Reporting Entity- Definition, Description & identification
  • Fundamental Qualitative characteristics- Understanding of Relevance ad representational Faithfulness
  • Conclusion
  • Language
  • References
Answer :
Organization Selected : Domino Pizza

INTRODUCTION

Financial reporting deals with communicating the financial information such as the financial statements to the users such as creditors or investors. Financial reporting is been viewed mainly as the companies issuing the financial statements. Main financial statements are income statement, balance sheet and cash flow statement. Financial reporting has very broad area and not just limited with reporting statements. Financial reports communicates all the information from the businesses to the outside users. Anything that is being conveyed as financial information to outside users can be termed as financial reporting. Financial reports are prepared in accordance with reporting frameworks given by the accounting authorities and regulatory bodies. Present report will provide about the concept of reporting entity and the essential of reportig entity. The annual reports of Domino Pizza of year 2019. Report will also provide for relevance and representational faithfulness of the useful information given in financial statements.

MAIN BODY

1.Reporting entity – Definition, Description, Discussion & Identification.

Reporting Entity

Definition

''Reporting entities are described as circumscribed area of the business activities for interest of potential and present investors or other capital providers. ''

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Reporting entity is defined as an entity, where it could be adequately expected that users are there who are dependent over GPFR (General Purpose Financial Report) for gaining the understanding about the financial performance and position of company. Also are dependent for making decisions that are taken on the financial informations and the other relevant information that is controlled within the financial reports. The users are employees, members, shareholders, lenders, creditors, or the potential investors (Tan and Low, 2017). It requires that reporting entity not to be over the business activities which are incorporated as legal entity – therefore partnerships, sole proprietorship, associations & the group entities would be falling within the description.

Definition of reporting entity is primarily based over notion of the financial accountability. Primary governments are primary accountable for organisations making up legal entity. On the other hand a non reporting entity can be defined as an entity where it has been defined by the governing authorities that it does not have users dependent on GPFR. They are permitted to prepare special purpose financial reports.

Description

Those charged with the governance are required to document whether the companies are having the users which are dependent over the GPFR for enabling them in defining whether an entity is an reporting entity or a non reporting entity. It is essential for determining the financial frameworks which are to be used. Reporting companies include large private corporations, listed public corporations with extremal users or shareholders having no access of the financial information other than financial reports and the public interests entities like educational institutions. An entity defined as reporting entity has to prepare the reports as per the GPFR. It states that Accounting standards laid down by the accounting board are required to be applied while preparing the financial reports (Carini and Teodori, 2020). All the reporting frameworks have risks associated with it. The major risk is in identifying whether an entity is a reporting entity or not.

It is essential for reporting entities to prepare & publish the financial statements

Financial statements should be prepared keeping that they should have legitiomate demand for information provided by financial statements. It inter alia means that information given by financial statements requires to be useful. The financials should report over the transactions and other events of the organisations affecting the financial performance & financial position. The reporting has to provide useful financial information.

Reporting Entity Concept

There are various alternative concepts on reporting entities are implicit in the existing regulations and legislations specifying the entities required to prepare the GPFR. Concepts include concept of legal entity that is employed in private sector legislations, and broad concept on the accountability of the elected representatives & appointed officials, employed in public sector. In public sector, accent over accountability has viewed widespread application of funds concepts of reporting, that implies concerns related to the reporting of results of the individual funds (Velte and Stawinoga, 2017). Concepts based over accountability of the elected representatives & the appointed officials have led the entities having such officials or representatives preparing the general purpose financial reports.

Discussion & Identification

Judgement is required for identifying whether an entity satisfies the criteria for reporting entity. Entities operating in public sector and having the implications of factors ''like separation of the management from the economic interests , political or economic influence and financial characteristics'' is that the most government department & statutory authorities are the reporting entities. It arises due to separation of between parties with economic interests in activities which are undertaken in this sector (Reporting Entity, 2019). Practical use of above factors is to identify the entities that are not the reporting entities.

Applying the concept of reporting entity in public sector will have the implications that whether at State, Federal, Territorial or at level of local government, will be identified as reporting entity. It is expected that users will be requiring the financial reports for decision making. Individual statutory authority and department can be termed as reporting entity because of the political or economic significance. In the private sector reporting entities are identified as entities with significant separation between membership/ ownership and the management such as listed trusts and the public companies (Haller, 2016). Entities with the management and members as identical group are not identified as reporting entity based on this concept. For example entities raising debt or equity will be classified as reporting entity as it will arise potential users requiring the financial reports. Classification of reporting will not be constant in all the reporting periods.

Domino Pizzas is considered as reporting entity as it is a listed public company. It has management and members separate unit, which makes it reasonable to expect that the users of financials statements exists. This makes company a reporting entity.

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2. Fundamental Qualitative Characteristic - Understanding of Relevance and Representational faithfulness

 Consolidated financial statements that are prepared by the Dominos are accurate and no misrepresentation was identified by the auditors during audit of the company documents. Auditors claim that financial statements prepared by the firm are fair and accurate and rules and accounting standards related to USA are followed strictly. Results of the business operations for the three years are in conformity to the general accepted accounting principles of the USA. Company maintained a strong internal control over financial activities of the business. In the annual report it is observed that Dominos change the way in which accounting for the revenue and cash as well as equivalent was done in the business. Accounting for the share-based compensation is also changed significantly which reflect that Dominos take a lot of steps to improve its accounting process (Cao, Chychyla and Stewart, 2015). Newly taken steps make accounting statements more relevant and useful for the investors. Thus, it can be said that accounting statements prepared by the chartered accountants of the Dominoes are accurate and completely reliable in nature. It is well known fact that Dominos top management is solely responsible for maintaining strict grip over the internal control on the financial business transactions. Time to time top management of the Dominos evaluate internal control mechanism to ensure that it is working at its best and there is no chance of the fraudulent activity in accounting operations of the company. Company financial statements can be validated from the disclosures that are given in the annual report. These disclosures to great extent indicate the way in which calculation is done and sources from which that specific value is created.

Such kind of things reflect that firm perform operations with full transparency and shareholders by evaluating financial statements can identify business activities of the firm and way in which it operates its business in the entire year. Thus, it can be said that Dominos take every step to ensure that accounting done by it is completely reliable and is of great use. On varied things estimates are also made by the accountants and same are given in the annual report (Guay, Samuels and Taylor., 2016). Auditors analyse these estimates and identify that these were framed correctly which reflect that accountant of the Dominos perform their task accurately and they take all necessary steps to ensure that they are in right direction. Dominos top management believed in the transparency of the company operations and due to this reason, each and every disclosure is made in the annual report by analysing which one can easily identify extent to which company financial statements are prepared in the fair manner. Thus, it can be said that accounting process of the Dominos is accurate and is highly reliable. Dominos is known for its ethical approaches and its name is not taken with the large size firms that were identified indulge in the manipulation of facts of business. Thus, overall it can be said that company accounting statements are highly reliable in nature.

Income statement, balance sheet and cash flow statement are the three financial statements have due importance for the firm. Income statement assist one in identifying operating expenses, non-operating expenses, revenue and profit. By considering these variables business performance is accessed. On other hand, balance sheet is another important financial statement. It is also known as statement of financial position which reflect assets and liabilities that are in the business. Third important statement is the cash flow statement which reflect the cash flow from operating, investment and financing activity. This statement reflects that in which of activities profit and loss is observed (Robinson and et.al., 2015). All these three financial statements are equally important for the firm but when income statement and balance sheet is compared then in that case it can be said that latter one if more useful for the firm. This is because income statement only indicates firm capability to control expenses in the business and profit earned by performing operations but balance sheet assist firm in evaluating multiple areas of the business. By applying ratio analysis of the balance sheet can be done to identify efficiency of asset utilization, availability of current asset to pay current liability, firm capability to convert inventory into cash, ability to utilize capital in efficient and effective way. Thus, it can be said that scope of analysis of balance sheet is more then income statement and in comparison, to latter one it assists firm to evaluate its multiple business operations. Hence, it can be said that balance sheet is more useful for the managers then income statement.

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On cash flow statement, ratio analysis approach can not be applied but it indicates whether cash flows are positive or negative on operating, investment or financing activity. Thus, by using cash flow statement one easily finds out that on which of the mentioned activities performance was relatively good or bad if compared to the previous year (Easton and Sommers, 2018). If both cash flow statement and balance sheet are compared with each other then in that case it can be said that latter one if more valuable for the firm. This is because cash flow statement only covers performance of the operating, investment and financing activity but balance sheet covers multiple fronts. Thus, it can be said that there is huge significance of all three statements but out of all of them balance sheet have significance for the firm.

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CONCLUSION

It could be concluded from the above study that reporting entities are required to prepare the financial statements as GPFR. The entities are regarded as the reporting entity based on three factors of reporting entity concepts. Applying the above concepts it is identified that Domino pizza is a reporting entity.

Other Related Samples:-

Budget and Process Involved in Preparing Budgets

REFERENCES

Books and Journals

  • Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement audits. Accounting Horizons. 29(2). pp.423-429.
  • Guay, W., Samuels, D. and Taylor, D., 2016. Guiding through the fog: Financial statement complexity and voluntary disclosure. Journal of Accounting and Economics. 62(2-3). pp.234-269.
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